Pier 1 Imports reported quarterly results last week and—there’s just no nice way to say this—they were awful. The company, which only last week completed a 1-for-20 reverse stock split to avoid its shares being delisted, delivered an abysmal 15.5% drop in sales and operating losses that nearly tripled. And in a sign that they have no clue (or no confidence in) how they will restore revenue growth, took their previously announced store closings up from 45 to 57.
None of this is new or surprising. The company has been struggling for a long time, both strategically and on the execution front. In fact the stock has lost (are you sitting down?) more than 95% of its value during the past 5 years, all during a period where the market has been booming.
There are many reasons why Pier 1 now finds itself in dire circumstances. Most obviously they are a casualty of what I call retail’s great bifurcation and the resulting collapse of the middle. Pier 1 chose neither to focus on great prices, dominant assortments and frictionless shopping, nor carve out a distinctive position based upon unique product, excellent service and a memorable experience. Instead of choosing remarkable, they kept selling average products to an ill-defined customer set, in uninspiring settings, in largely secondary locations.
The other big miss for Pier 1 is that they have been slow to embrace harmonized retail. First, they made the highly questionable decision to shut down e-commerce completely in 2007, just as everyone else they competed with was investing in it. While they relaunched online selling in 2012, their approach was more about seeing it as a separate channel, rather than also a key driver of brick & mortar sales. Today, their “omnichannel” capabilities are more or less competitive, but they are still digging themselves out of the hole they unnecessarily created more than a decade ago.
Also, in what is likely a sign of desperation, Pier 1’s marketing strategy seems to be all about discount and seducing the promiscuous shopper. The front page of the website, as just one example, is chock-a-block with 50% off offers. While rampant promotions are certainly not unknown in the home furnishings industry, this lack of price integrity is hardly a recipe for long-term success.
Adding to Pier 1’s woes is the reality that its product categories have become ridiculously (and some would argue, unfairly) competitive. In addition to the increased focused on the category from the discount stores (e.g. Target), and the rapid growth of off-price (e.g. Home Goods), Amazon and Wayfair have built massive home businesses in just a few short years. While we don’t much about Amazon’s category profitability (wild guess: low), we do know that Wayfair has not only been spending a ridiculous amount on customer acquisition, its pricing strategy appears to be equally unsustainable given its well below average gross margins. I’m on record as saying that I believe Wayfair is, more or less, a house of cards. Regardless of whether I’m right, they wreak havoc on many retailers’ ability to break through on marketing and be price competitive while making any money.
I would like to be optimistic about Pier 1’s ability to mount a meaningful turnaround. But unfortunately they follow a pattern of retailer’s that watched the last 20 years happen to them and now may be boxed into an untenable situation.
First, as I’ve written about many times, it is largely impossible to shrink your way to prosperity. While some retailers may need fewer and smaller stores by virtue of e-commerce growth, the brands that are truly unique and intensely customer relevant rarely find that to be true. In fact the best brands are growing store counts and growing online sales.
Second, Pier 1 needs a massive strategic repositioning and that takes time and a fair amount of money. Sadly, the once storied brand has neither.
A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts here.
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